Wall Street's benchmark S&P 500 index is expected to advance about 5% from Tuesday's close by year-end although high interest rates and inflation have many strategists in a Reuters poll predicting a correction within the next three months.

The S&P 500 was expected to end 2023 at 4,200 points, which would amount to a 9.4% increase for the calendar year, according to the median forecast of 42 strategists polled by Reuters. This forecast target is unchanged from a November 2022 poll.

After falling 19.4% in 2022, the S&P 500 index is up 4.1% for the year so far.

Over 70% of analysts, 10 of 14, who answered an additional question said there was a high chance of a correction in the U.S. equity market over the coming three months. The remaining four said low.

However, more than a three-quarters majority said their year-end forecasts did not depend, even in part, on central banks like the U.S. Federal Reserve cutting interest rates within 12 months.

"The odds of rates going higher and staying (higher) longer have increased. That also increases the probability of a Fed mistake of some kind which would weigh on multiples," said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in Charlotte, NC.

Because the labor market and the broader economy have been more resilient than previously expected, Samana sees that making "the glide path for inflation a shallower dip," than he had initially expected.

The S&P was trading at 18.5 times expectations for earnings for the next 12 months compared with its average forward P/E of 15.8 for the last 20 years, according to recent Refinitiv data.

As of Feb. 17, Wall Street's expectation for S&P earnings growth for 2023 has fallen to 1.6% from an expected 4.4% on Jan. 1, according to Refinitiv.

Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis sees "significant headwinds for equities" including elevated inflation, the Fed's rating hiking cycle and decreasing earnings expectations for 2023.

As such he said it is "difficult to envision equities trending meaningfully higher" but still he said "sentiment is becoming increasing constructive."

But while Sandven's year-end S&P 500 target doesn't depend on interest rate cuts he said "it does depend on moderating inflation and improved earnings visibility."

Survey respondents (12) were equally split, six for six, on whether growth or value stocks would perform better this year.

The poll also showed the Dow Jones Industrial average was expected to rise 9.2% for the full year to 36,200 by year end. This compared with its Tuesday close of 33,129.59 and its 2022 closing level of 33,147.25, which represented an 8.8% drop for last year.

Strategists had expected the Dow to end 2023 at 36,500, according to a November poll.